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Life Insurance

Charitable Gifting with Shared Ownership Universal Life Insurance

Many individuals have realized their charitable aspirations by donating a life insurance policy to the charity of their choice.  In situations where that donation is a Universal Life policy, the use of a Shared Ownership strategy could prove to be a viable investment for the donor.

Shared Ownership refers to an arrangement involving cash value life insurance policies such as Universal Life.  Universal Life combines life insurance with an investment fund which grows tax deferred until the cash value is withdrawn.  If the cash value is paid out at death, the growth is tax free.

Under Shared Ownership, the life insurance and the cash value would have different owners and beneficiaries and would be structured as follows:

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Thinking of Cancelling Your Life Insurance?

Have you found yourself wondering if you really need that life insurance policy you pay for every month?  You are not alone.

As time goes on we often forget the reasons behind purchasing the amount and type of coverage we did. For this reason it is advisable to have regular reviews to make sure you are adequately protected.

Perhaps you are having trouble making ends meet and are looking to trim expenses.  Maybe you simply don’t think you need it because the kids are getting older and your obligations to them have diminished.  Some may feel that they have enough assets accumulated that insurance is no longer necessary and even a waste of money.  Before you make the decision to cancel your life insurance policy, consider these compelling reasons to keep it.

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What the Wealthy Know about Life Insurance

If you have ever thought that life insurance was something you wouldn’t need after you reached a certain level of financial security, you might be interested in knowing why many wealthy individuals still carry large amounts of insurance.  Consider the following:

  • A life insurance advisor in California recently placed a $201 million dollar life insurance policy on the life of a tech industry billionaire;
  • Well known music executive David Geffen was life insured for $100 million;
  • Malcolm Forbes, owner of Forbes Magazine, was insured at the time of his death in 1990 for $70 million.

While life insurance is most often looked upon as a vehicle to protect ones family or business, the question that springs to mind is why would individuals with wealth need life insurance? 

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Boomer + Sandwich Generation + Club Sandwich + Boomerang = Financial Instability

The Sandwich Generation was a term coined by Dorothy Miller in 1981 to describe adult children who were “sandwiched” between their aging parents and their own maturing children.  There is even a term for those of us who are in our 50’s or 60’s with elderly parents, adult children and grandchildren – the Club Sandwich.   More recently, the Boomerang Generation (the estimated 29% of adults ranging in ages 25 to 34, who live with their parents), are adding to the financial pressures as Boomers head into retirement. It is estimated that by 2026, 1 in 5 Canadians will be older than 65. This means fewer adults to both fund and provide for elder care.  Today, it is likely that the average married couple will have more living parents than they do children.

What are the challenges?

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Occasional Marijuana Users Get a Break

With the federal government heading towards the legalization of personal marijuana use some life insurance companies have announced that occasional marijuana smokers would now be considered as non-smokers on new applications for life insurance and in some cases critical illness insurance.

How significant is this change?  Substantial!

As an example, for a male age 35, the standard smoker premium for $500,000 of 20 year renewable term is $1,070*.  Now a recreational marijuana user can purchase that same coverage for 410 per year. *

Sun Life, BMO and Empire Life were the first three companies to make this change.  Most insurance companies are expected to make similar announcements.  For some companies, medicinal marijuana users are excluded from the new offering but may be considered on a case by case basis.

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Do You Need Individual Life Insurance?

Canadians may need to rethink their risk management

In a recent study conducted by the Life Insurance and Market Research Association (LIMRA), it was reported that 61% of Canadians hold some form of life insurance.  Surprisingly, it also revealed that only 38% of Canadians own an individual life insurance contract.

In another study of middle class Canadians, Manulife reported that 79% had no individual disability insurance and 87% had no individual critical illness coverage.

What both of these studies conclude is that most Canadians rely heavily on their group benefits for their family’s insurance protection. 

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The Clock is Ticking!

Don’t Put Off Your Decision to Buy Life Insurance

2016 is an opportune year to buy life insurance.  New laws affecting the taxation of life insurance come into effect on January 1, 2017. After this date new policies will not perform as well as they do currently.

The good news is that the proceeds of life insurance policies paid at death still remain tax free.  What has been affected is the amount of cash value that may accrue in a policy and the tax-free distribution of death proceeds from a life insurance policy owned in a corporation.

How will this impact your existing and future policies?

Adjustment to the Maximum Tax Actuarial Reserve

Whole Life and Universal Life policies are valuable vehicles in which to accumulate cash value. The limit of how much can be invested is governed by the Maximum Tax Actuarial Reserve (MTAR).  If the cash value ever exceeds the MTAR limit, the policy is deemed to be “offside” and will be subject to accrual taxation.

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Taxation of Life Insurance – New Rules Offer a Window of Opportunity

Permanent life insurance, such as Whole Life or Universal Life, has long been accepted as a tax efficient way of accumulating cash for future needs.  Soon the amount of funds that can be tax sheltered within a life insurance policy will be reduced by new tax rules which take effect January 1, 2017.  These changes may make 2016 the best year to buy cash value life insurance.

The changes to the tax rules regarding life insurance have resulted in an update to the “exempt test” which measures how much cash value can accumulate in a policy before it becomes subject to income tax.

Highlights of the new rules and their effect

For Cash Value Life Insurance:

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The Estate Bond

Growing your estate without undue market risk and taxes

Often we see older investors shift gears near retirement and beyond.  Many become risk adverse and move their assets into fixed income type investments.  Unfortunately this often results in the assets being exposed to higher rates of income tax and lower rates of return – never a good combination.

Or maybe the older investor cannot fully enjoy their retirement years for fear of spending their children’s inheritance.

The Estate Bond financial planning strategy presents a solution to both of these problems.

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Is it Time for your Insurance Audit?

Has it been awhile since you last looked at your insurance portfolio?

Are you a little sketchy in your recollection of all the coverage you have and why you have it?

Are you uncertain as to whether or not your portfolio reflects your current situation?

Just like going to the dentist for regular checkups is a necessary evil, reviewing your financial plan and products on a regular basis is also recommended.  Circumstances can change over time and making sure your protection is keeping pace is a worthwhile exercise.

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